An app for investing your 'spare change'

Acorns, in a nutshell, is a smartphone app that taps your debit and credit cards, rounds up purchases to the nearest dollar and invests that "spare change."

It's an intriguing way to come up with a little cash for investing while minimizing pocketbook pain. It could appeal to newbie investors, young people with time to build wealth and those who are just plain scared.

"So many people are stressed about their finances -- it's an almost paralyzing fear," Jeff Cruttenden told the Los Angeles Times. The 27-year-old behind Acorns says the program could be a first step for the fearful.

Here's how it works:

"You can connect multiple debit or credit cards to Acorns," Cruttenden said by email. For example, buy something for $1.50, and "Acorns sets aside the other 50 cents. When your spare change adds up to $5, it will get invested.

If you use a debit card, Acorns takes the money from your account. If it's a credit card, the program takes the money from an associated checking account -- "we don't want people to contribute to credit card debt in order to invest with Acorns," Cruttenden said.

The program is in beta and will be available to the public at a date to be determined in mid-June.

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The basic concept isn't novel. Banks have offered programs that round up the cost of a debit-card purchase to the nearest buck and then push the difference over into a savings account, such as BofA's Keep the Change. But savings account interest is nearly zilch. Acorns puts the money into publicly traded securities.

"Designing an app to help people invest loose change was the easy part," Cruttenden said. The tough part was designing a platform "to handle micro-payments, small brokerage accounts, no commissions" and five portfolios with different levels of risk.

Portfolios are recommended based on customer income and investment goals, among other factors. The accounts, Cruttenden said, have different allocations of exchange-traded funds "selected by our team of mathematicians and engineers in conjunction with Nobel Prize-winning economist Harry Markowitz."

Acorns charges a $1 per month fee to make unlimited transfers into one of the investment accounts. There's a 1 percent annual fee for the account, which drops to 0.25 percent when assets pass $5,000.

You're not restricted to investing small change, of course. You can dump in your entire piggy bank. But there's no minimum balance. The median account balance among beta users of the Acorns app for iPhone and Android is $95, Cruttenden said. Some accounts start out "quite large" but others begin with just that initial $5. In beta, he said they've seen "most" users adding regularly to their accounts, "upwards of $50 a month."

Portfolios have an expected return of around 4 to 9 percent depending on risk factor. The portfolios are monitored, dividends reinvested, and customers can track accounts in real time with interactive charts.

Cruttenden, chief operating officer of Acorns, is in league with his dad on this venture. Walter Cruttenden III, a longtime Orange County investment banker, is CEO of the new company. Dad co-founded E*Offering investment bank with E*Trade. Acorns was a project the pair had discussed for years, the younger Cruttenden said.

Through his dad, Jeff was exposed to investing at an early age and in college helped friends and fellow students to start investing.

They faced three major hurdles, he said, "high minimum account balance requirements; prohibitive commissions to trade; and a huge selection of stocks that generally leads to people making no decision."

That's the fear factor referred to earlier. With Acorns, users may be able to get past that reticence.